Academy of BFSI,

Ethics in Selling Life Insurance

“I have observed several hundred salespeople who were taught to use deceptive practices like ‘bait and switch’ and encouraged to play negotiation games with customers… In the same industry, I have observed countless people who had been taught to sell with high integrity. Ironically, their customer satisfaction, profit margins, and salesperson retention were significantly higher.”

                                                  — Ron Willingham in Integrity Selling for the 21st Century

INTRODUCTION

The above essence undermines the importance of Ethics in Insurance selling. Ethics are an important element underlying the conduct of the insurance agent. Ethics are a form of self-imposition, based on individual standards and principles, learnt by ideals and standards drawn from outside one’s own knowledge and experience. The financial intermediary as a representative of the insurer and the customer is required to meet a level of conduct appropriate with the responsibilities and duties of the position.

DEFINITION

Ethical Marketing is defined as “practices that emphasize transparent, trustworthy, and responsible marketing practices and actions which exhibit integrity and fairness to consumers and other stakeholders.”

Based on this definition is there a marketing or sales approach that is more ethical than

another? The traditional approach to marketing and selling insurance was to get a customer to buy insurance products that maximize the income for the producer or company. This is known as a transactional sale. The emphasis is on the single transaction and overwhelming the buyer with enough pressure to close the sale. Over the past years, this method of sales has been giving way to a more collaborative, trust-based approach known as consultative selling. Transactional selling is not illegal and is not even unethical per se, but the consultative sales approach better meets the ideal of ethical marketing.

SALES PERSON: THE KEY FORCE

Customers while buying complex financial services such as insurance, often rely on information provided by sales persons. Moreover, they also lack the technical knowledge required for evaluating the quality of service provided. Insurance is regarded as a high credence service which is abstract, complex and is concerned about future benefits which are difficult to prove. This is one of the primary reasons why insurance consumers would never understand what they have purchased. Ultimately, the consumers are at the mercy of ethical behaviour portrayed by sales personnel

Moreover, customer loyalty is often considered as an important source of competitive edge, particularly in the financial services industry. Financial service providers use relationship marketing strategy to maintain close customer relationships and retain them in long term, instead of having short-term goals. It is important to have customer trust for building strong customer relationships, having a sustainable market share and securing customer loyalty. Since financial services are characterized as highly intangible, many consumers find it difficult to understand; even salespersons find it difficult to portray the future benefits of such services. Therefore, consumers often rely on the advice and information provided by salesperson while buying financial services. The salesperson can take advantage of customer’s situation and thus, the opportunity is one of the key influencers of ethical behaviour than one’s own personal beliefs.

ROLE OF INSURANCE COMPANIES

Although every organization lays down a code of conduct for salespersons and sets clear rules for them, yet there are multiple opportunities where ethics gets compromised by them. Firstly, salespersons usually work in unsupervised settings where the chances of ignoring the ethical norms of the organization are high. Secondly, the salespersons level of stress is quite high as they are primarily responsible for generating the firm’s revenues, which influences them to engage in unethical behaviour. Moreover, salespersons usually get evaluated based on short-term objectives, which further set the stage for dishonesty or exaggeration. Both these situations imply the opportunity for the salesperson to violate corporate ethics policies. Past research studies indicate that in the selling of intangible services like insurance, it is difficult to distinguish between the salesperson and the company from the perspective of the customer. According to Holdon, “salesperson’s ethical behaviour is positively related to both customer trusts in the salesperson and customer trust in the company” and any unethical behaviour on the part of salesperson inhibits the development of customer trust in both the company and salesperson. On the other hand, if salesperson’s behaviour is ethical, then it has an impact on the customer perceptions of the company and the company is also likely to be perceived as ethical by the customers, and there by Sales Personnel become Brand Ambassadors of the Company.

COMMON ETHICAL ISSUES IN INDIAN LIFE INSURANCE INDUSTRY

The following issues are the key “Marketing Ethical Issues” portrayed by life insurance policyholders in India, which are prominently portrayed as an unfair business practice.

  1. Salesperson lies about competition in order to make a sale (People issue).
  2. Salesperson overstates the potential benefits of the insurance product (People issue).
  3. Salesperson paints rosy pictures of the products to make them sound as good as possible. (People issue).
  4. The insurance salesperson lies in order to make a sale, especially in case of ULIPs (People issue).
  5. The salesperson tried to offer unauthorized gifts to influence purchasing policy
  6. Salesperson applies sales pressure when he/she knows the product is not good for me
  7. Salesperson offers incentives to buy a new policy in return of cancelling the existing policy of the same insurance company.
  8. Salesperson misrepresents penalty clauses to influence the buying decision.
  9. The language regarding the policy, terms, and conditions used in the documents are difficult to understand (Product issue).
  10. The company intentionally keeps penalty clauses vague Ex. Surrender charges, revival charges etc., (Product issue).
  11. The company uses small print clauses to camouflage (hide) the truth (Product issue).
  12. The company does not inform customers about Insurance ombudsman (Insurance Regulatory Authority of India i.e. IRDA) (Product issue).

AN INTRO INTO COMPLAINTS LODGED WITH IRDAI

Source: IRDAI website – www.irdai.gov.in

The above graph shows the classification of complaints lodged with IRDAI, from 2014 to 2017. It is clear that the majority of the complaints lodged are basically with Unfair Business Practice, followed by Policy Servicing. It is an indication of non-ethical practices which are rampant. One brighter note is the decrease in complaints lodged, in almost all the classes of complaints.

Summary

As a licensed professional, it is important for the agent to know that meeting the ethical and legal requirement of each insurance transaction is the most significant way to positively impact the customers. Meeting a high standard of ethical conduct that is approved of by the licensing regulators, the insurance company, and clients are the surest path toward career satisfaction and reward for the agent.

About the Author:


Mr. Paramesh Kumar S has a diversified work experience of 27 years. He has worked with McMillan Press as an Editor for 2 Years, 22 Years in various capacities in leading Insurance Companies including LIC, HDFC, Reliance, Exide Life. He was heading South India for training needs of Apps Daily, the mobile app Company, before joining Manipal.

Currently, he is associated with MABFSI since November’16 as Assistant Professor with Life Insurance vertical.

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